JMB Photography reported net income of $100,000 for 2010. Included in the income statement were depreciation expense of $6,000, patent amortization expense of $2,000, and a gain on sale of equipment of $3,600. JMB’s comparative balance sheets show the following balances.
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GRINDERS CORPORATION |
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Cash flows from operating activities |
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Net income |
$59,000 |
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Adjustments to reconcile net income to net cash |
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provided by operating activities: |
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Depreciation expense |
$9,100 |
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Decrease in accounts receivable |
9,500 |
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Loss on sale of equipment |
3,300 |
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Increase in inventory |
(5,000) |
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Decrease in accounts payable |
(2,200) |
14,700 |
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Net cash provided by operating activities |
73,700 |
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Cash flows from investing activities |
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Sale of investments |
3,100 |
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Purchase of equipment |
(27,000) |
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Net cash used by investing activities |
(23,900) |
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Cash flows from financing activities |
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Issuance of stock 20,000 |
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Payment on long term note payable |
(10,000) |
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Payment for dividends |
(15,000) |
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Net cash used by financing activities |
(5,000) |
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Net increase in cash |
44,800 |
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Cash at beginning of year |
13,000 |
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Cash at end of year |
$57,800 |
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(a) Compute free cash flow for Grinders Corporation. (b) Explain why free cash flow often provides better information than “Net cash provided by operating activities.